Water industry regulator Ofwat has published its latest report on the financial performance and expenditure of the water companies in England and Wales for the financial year 2009-10. The report examines the operating profits, cash flows and balance sheets of the regulated water and sewerage companies and the water only companies.

Financial performance

The companies’ operating profits rose to £3.5 billion in 2009-10, an increase of 7%. Ofwat attributes the rise to higher revenues, which were only partly offset by increased operating costs and capital maintenance charges. This also caused the interest cover ratios to rise slightly.

The companies’ overall return on capital for 2009-10 was slightly higher (7.2%) than in 2008-09 (6.8%), but lower than the 7.5% assumed when we set price limits in 2004.

Operating expenditure

Total operating expenditure for the sectors in 2009-10 was £3.7 billion (excluding exceptional items). This was £61 million more than in 2008-09 and represents a 1.7% increase in real terms. It is £60 million (1.6%) more than Ofwat assumed in price limits for 2009-10.

Ofwat said there has been continued upward pressure from energy costs, despite recent falls in unit prices. This is because some companies locked into forward contracts in 2007 and 2008, when prices were higher than they are now.

Investment

Overall, the companies invested £4.0 billion in 2009-10 - 11% more than Ofwat assumed in the 2004 price limits, but 14.9% lower than in 2008-09. Of this total, maintenance spend fell by 13% to £2.1 billion and expenditure on improvements fell by 16.9% to £1.9 billion.